At 5,96 per cent, the Wholesale Price Index-based inflation in March grew at the slowest rate in more than three years. It is significantly lower than the 7.69 per cent recorded in March last year and 6.84 per cent in February 2013. It is also lower than the 6.8 per cent projected by the Reserve Bank.
The inflation falling below the 6 per cent mark, for the first time since November 2009, helped push up the Sensex (up 0.7 per cent) and the bond markets.
This softening has cemented expectations that the RBI was now more likely to cut policy rates in its next policy review on May 3.
Wholesale prices, which are the main gauge for inflation in India, have trended downward from 8 per cent in September last year.
Encouraged by the latest WPI numbers, Planning Commission Deputy Chairman Montek Singh Ahluwalia expressed confidence that price situation would improve further in the coming months.
“I have to say that monthly numbers can jump around, but it has been our view that in a gradual way inflationary pressure is coming down,” Ahluwalia said.
January figures
The Commerce and Industry Ministry also revised upwards the WPI-based inflation for January to 7.31 per cent from 6.62 per cent earlier. Much of this rise was contributed by the lagged adjustment to the fuel index.
“These monthly numbers in our system are not so robust that you don’t get a correction. If the January number has been raised upwards, then the extent of slowing down of inflation is greater than the unrevised number show,” Ahluwalia said.
So far this year, the RBI had cut the policy rate twice by 25 basis points each. Despite the softening in inflation, the RBI is expected to be in a tough spot on taking further rate cut decision. This is because the recent deterioration in current account deficit is likely to keep interest rates high and cool the economy.